A report by the American Bankers Association projects the total value of digital loans to reach $90 billion in 2020 (and jump to $200 billion by 2025), as more and more businesses leave behind paper-based and manual processes to meet the changing expectations of a modern customer who demands enhanced speed, greater convenience, and security from their lender.
For those in the financial services sector, whether it be real estate brokers or mortgage lenders, one of the major concerns inhibiting the adoption of technology is the legality and enforceability of electronically signed documents as secure assets. These electronically signed documents need to be stored in a way that ensures they retain the same legal enforceability as paper.
The question now for finance leaders and lenders should no longer be whether to adopt new technologies for digital lending, but rather which technologies best meet their needs now and in the future.
An electronic vault, also known as an eVault, is an indispensable technology component of digital commercial and mortgage lending. This is particularly true in the context of the remote digital lending scenarios emerging after COVID-19.
This year’s ‘Coronavirus Aid, Relief, and Economic Security’ (CARES) Act illustrates how eVault technology enables the legal enforceability of remotely executed digital loans. Passed by Congress in late March, the CARES Act aimed to protect Americans from the public health and economic impacts of COVID-19. The legislation created several new temporary lending programs within the Small Business Administration (SBA) including the Paycheck Protection Program (PPP), EIDL Loan Advance and SBA Express Bridge Loans. Guaranteed by the Federal Reserve, loans are made to eligible borrowers by SBA approved lenders.
The SBA’s Standard Operating Procedures (SOP) guidelines require lenders to create, store, and assign authoritative copies of digital loans in compliance with the Uniform Electronic Transactions Act (UETA), the Electronic Signatures in Global and National Commerce Act (ESIGN), and Uniform Commercial Code Section 9-105 (UCC 9-105).
Coupled with eSignature technology, only purpose-built eVault technology allows lenders to satisfy all digital loan requirements set forth by the SBA.
To understand why eVault technology is so important, it’s useful to take a step back and examine the underlying technology.
How an eVault Works
Within the context of digital lending, eVault technology works by permanently binding electronic signatures to a document and creating a tamper-proof audit trail that demonstrates ownership and compliance. The process of eVaulting a document within a secure, trusted environment fulfils the legal and regulatory requirements for uniqueness and negotiability of the document as a digital financial asset. These compliant Digital Original® assets are often referred to as an Authoritative Copy or Transferable Record. As interaction with the document occurs throughout its lifecycle, the eVault also enables the owner or secured party to control the access rights to the asset and tracks all activity regarding the asset: from signing, maintenance, sale, pledging, collateralization and securitization through to its ultimate disposition or destruction.
Step 1: Transaction parties sign electronically, either in-person using an electronic signature pad or other signing device, or by logging into a secure online portal and applying their electronic signatures to one or more documents.
Step 2: Once the signatures are applied, the document is instantly deposited into the eVault—establishing the authoritative original document—where it is held and managed via controlled access by authorized parties throughout its lifecycle.
Step 3: All activities and functions affecting the original documents are controlled and logged by the eVault. This includes any print, copy, or view requests; generating legally admissible copies for use in a court of law; transferring the authoritative copies to another vault; and exporting them to paper permanently.
Why Financial Institutions Need an eVault
In an increasingly complex regulatory environment, financial institutions face growing compliance requirements for assets associated with commercial and mortgage loans. Digital solutions deliver more cost and time savings for asset storage and management.
However, compliant electronically signed documents require a higher threshold of security and accessibility than provided by some document management providers. Documents must remain protected and accessible to authorized parties throughout the lifecycle of a transaction. organizations and meet the following conditions:
- Controls are in place every step of the way to track an original document and prove its unaltered authenticity and uniqueness
- Document owners and custodians can manage access rights and have the ability to perform ongoing audits
- Original documents are transferrable, and legally admissible copies can be forwarded to multiple downstream participants through the various stages of a transaction
The best way to address all of these requirements is with compliant eVaulting.
Three Key Benefits of Electronic Vault
Storing signed, verified, and confirmed digital documents safely is invaluable for physical data security as well as legal defenses. Holding documents in a vault ensures specific processes are followed which guarantee electronically signed documents (and properly certified copies) remain enforceable, admissible, and negotiable.
2. Risk mitigation
Organizations using an electronic vault benefit from better records management, faster access to documents, and a clear audit trail across for the document’s full lifecycle. Having complete insight into the digital chain of custody ensures all stakeholders have complete access to asset metadata.
In fact, the electronic vaulting needs of financial institutions go far beyond the standard managing and secure storage of documents in the cloud. To ensure compliance with the myriad legislative statutes that govern electronic contracts and signatures, financial institutions need electronic vaulting solution to manage the entirety of the digital lending lifecycle.
Nine Features of Best-In-Class eVault Solutions
Given the pressing need to secure, manage, maintain, and track critical documents, financial institutions should actively seek out a robust, purpose-built electronic vaulting solution that improves the digital lending process.
Unfortunately, not all eVaults are created equal.
In fact, many solutions which purport to serve vaulting needs are not true electronic vaults. Much of the needed functionality is simply not available in such systems, and would have to be designed, developed, and integrated, requiring more time, effort, and money.
A best-in-class eVault solution will have the following nine features:
1. Encryption and tamper seals to ensure that all e-signed documents remain tamper-evident, time-date stamped, and protected throughout their lifecycle. The tamper-evident seal should instantly identify and reject any changes to the document from signing
2. An authenticated and secure audit trail that extensively tracks every action taken throughout the lifecycle of the transaction, including:
- Any and all access to the document
- Any copies made, by whom, and for what purposes
- Any transfer of ownership or custody
- Any transfer of location
3. An advanced, encrypted evidentiary package that ensures all electronic documents have the strongest audit trail and chain of control—should the validity of critical documents ever be questioned. It should also allow document owners and custodians to produce legally admissible print copies if necessary
4. Access and rights management features to allow secure and enforceable third-party rights and privileges in accordance with the terms of the custodian and collateral control agreements. It should also allow for the transition and transfer rights of documents based upon status changes, cancellations, and other events without invalidating its tamper seal
5. Regular integrity checks that ensure there has been no alteration or degradation since signing, which also verifies the integrity of every document managed by the system
6. E-custodian services that grant internal or external parties access to individual collections or portions of transactions, without compromising the integrity of the originals
7. Compliance support for secondary market regulations that ensure documents reside within a secure, closed system with no copies existing outside of the secure environment, along with electronic pooling and post-sale, document securitization capabilities for new loan owners
8. Destruction and retention protocols that allow an institution to permanently destroy or remove the electronic original from the vault while creating an enforceable paper version, as well as the ability to trigger the destruction of the electronic document after predetermined periods of time or status changes
9. Easy integration with existing systems, characterized by vault-to-vault transfer capabilities, TOLEC (Transfer of Location of Electronic Contracts) support, and seamless connection with a variety of e-signature solutions to enable the processing of even the most complex business applications
Finding the Right eVault Solution: Pricing and Implementation Models
How does an organization decide on the best eVault solution to implement? It depends, of course, on an organization’s size, business requirements, and scope of operations—as well as the level of expertise and best practices of the vendor.
It’s important to remember that transitioning to digital means more than just ditching a paper archive. It’s not a race to the bottom for the cheapest and easiest way to digitize, which will compromise compliance and operational efficiency.
Pricing for eVaulting services is also extremely variable and dependent on a number of factors, chief among them being the implementation model. The three major models for electronic vaulting are:
1. Company-hosted– A company-wide, enterprise application installed behind the institution’s firewall and tightly integrated to existing business processes
Best for: Larger institutions with higher volume processing that want customizable integration options and the ability to maintain control of the vault in-house
2. Turnkey– A preconfigured, managed vaulting solution packaged with the software and hardware necessary for faster implementation that is based upon accepted best practices
Best for: Institutions that want key vaulting functionality and rapid adoption without the need for a “build-it-yourself” enterprise solution
3. On-demand– A web-based, SaaS electronic vault that can be switched on immediately with a transaction-based, pay-as-you-use fee structure that eliminates complex implementation plans entirely
Best for: Institutions that want to achieve rapid ROI from e-vaulting with minimal effort
In addition to offering the best-in-class features mentioned above, top vendors will be able to show established use of their electronic vaulting solutions in mass volume, with results that demonstrate measurable ROI and a track record of understanding the expectations of the modern, omni-channel customer.
This year, COVID-19 changed many aspects of how consumers buy homes and close mortgages. Before the pandemic, paper-based lending processes were common, typically taking place in a bank, a lawyer’s office, or a title company’s office where people would be in proximity, sharing documents and often sharing the same pen: an environment ripe for virus transmission. As lenders rush to digitize their consumer-facing processes, an eVault solution is a vital component to providing fully compliant and contactless digital loan solutions.